Rural Investment Pays off in China

Jamil Anderlini

Tuesday, 11 Sep 2012 | 8:16 PM ETFinancial Times

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The carefully staged political pageant that will play out next month in Beijing is not something that Jiang Wenhai, the 40-year old Communist party secretary of Silver Dragon village, spends a great deal of time thinking about.

Keren Su | China Span | Getty Images

For all of China's talk of economic rebalancing, the act appears mostly geographic.

In this remote part of the southwest province of Guizhou, officially the poorest part of China, the locals like to say that “the mountains are tall and the emperor is far away”. But Mr. Jiang is more politically correct than that.

“The 18th [Communist party] Congress doesn’t have very much to do with Silver Dragon village; it’s not for us to ask who leads the nation,” Mr. Jiang says. “But whoever is chosen I’m sure the Communist party will continue to improve the people’s lives.”

When President Hu Jintao and Premier Wen Jiabao step aside at the Congress, expected in October, to make way for a new generation of leaders, they will leave behind a country that is far richer and more powerful than it has been in two centuries, with an economy roughly three times the size it was when they took over.

Many economists, political analysts and Chinese intellectuals believe their administration over the past 10 years has missed the opportunity to institute real economic and political reforms during the boom years.

But out here in the countryside, among China’s more than 700m peasant farmers, the Hu-Wen government can perhaps claim its greatest domestic policy achievement.

When they took power in 2002, the countryside was seething with discontent over a lack of basic services, a smorgasbord of taxes and fees levied by corrupt officials and a bias towards developing cities along China’s prosperous eastern coast.

Almost immediately, the new government set about rebalancing growth and embarked on a campaign to “construct the new socialist countryside”.

In 2006, for the first time in two thousand years, all agricultural levies in the countryside were abolished and the government poured trillions of renminbi into rural infrastructure.

“From 2006 until 2012 the government has invested Rmb6 trillion into the countryside – the same amount as President [Barack] Obama’s stimulus package in response to the financial crisis,” says Wen Tiejun, president of the School of Agricultural Economics and Rural Development at Renmin University and a top adviser to the Hu-Wen administration. “The US put all the money into the financial sector, which will lead to a financial bubble, but China used its stimulus to resolve the extreme shortage of capital in rural areas and support relatively quick economic growth.”

Thanks to this investment, 95 percent of Chinese villages now have roads, electricity, running water, natural gas and phone lines, according to Mr. Wen, compared with fewer than 50 percent of villages in India, where the rural population is similar in size.

Throughout the countryside it is clear that many people feel their lives have improved enormously.

“Silver Dragon has changed a lot since my childhood and the biggest changes were in the last 10 years,” says Mr. Jiang. “Now everybody has good clothes and food, there is no problem with basic survival and the houses are all bigger than they were before.”

The disposable income of an average Chinese urbanite is still more than three times higher than the total income of the average rural dweller but in the last two years rural income growth has exceeded urban income growth for the first time in decades.

In 2011 alone, the average annual income of a Chinese rural resident increased nearly 18 percent to Rmb6,977 ($1,106), while urban disposable incomes rose just 14 percent to Rmb21,810, according to official data.

But as a new generation of leaders steps up to take control of the country, the next phase of rural development is likely to prove much more difficult.

Despite Beijing’s largesse, economists say the biggest contributor to rising rural incomes has been remittances from migrant workers who move temporarily to the cities to work in factories, restaurants or on construction sites.

Under China’s strict hukou household registration system, these migrants find it very difficult to become permanent residents in the cities or to gain access to even basic social services outside the village or town where they were born.

Because of this and because of rising living standards in the countryside, many former migrants are choosing to return to their ancestral homes, partially reversing the urbanization trend that has been a key driver of China’s growth in the last three decades.

Mr. Jiang is one of these former migrants who decided to move home after almost 20 years working in big cities around China as a soldier, a chef and a security guard.

Like most migrants, he would send back more than half his income every month to support his parents in the village, but now he sees a lot of his contemporaries moving back to the countryside.

“Most people in Silver Dragon don’t want to be migrant workers now because our village is improving and you can earn money back here now too,” Mr. Jiang says.

Economists worry that when all the roads, power stations and new houses are built there will still be far too many under-employed peasant farmers working on small plots of land across the vast hinterland, and that will eventually hamper China’s growth.

“Rural life is hugely better than it was in the 1990s, partly as a result of subsidies and partly because of real economic growth,” says Stephen Green, chief economist for greater China at Standard Chartered. “If there’s one big criticism it’s that China needs more urbanization and at some point throwing money at the countryside won’t help that.”

Making China more urban will require difficult changes to the way the government manages its enormous population and probably also a fundamental shift in the current system of property ownership, under which the state still technically owns all land in the country.

For all their success in raising rural living standards, China’s outgoing leaders were unable to tackle these enormous problems during their 10 years tenure. The urgent task will now fall to a new generation.